BY GAURAV KULSHRESHTHA | 07 JUN, 2017
The Second Bi-Monthly Monetary Policy Statement for FY 2017-2018 was released by RBI today. Following were the highlights.
Consequently, reverse repo remains unchanged at 6.00% and the MSF rate and Bank rate remain unchanged at 6.50%
Additionally, RBI announced the following macro-prudential measures for strengthening the banking regulatory framework.
The RBI has slashed its CPI inflation forecast and now expects H1 FY18 CPI to be in the range of 2.0%-3.5% rising to 3.5%-4.5% in H2 with evenly balanced risks. Even the GVA forecast has been revised down marginally by 0.1 ppt to 7.3%. This is in-line with Citi economist’s projections of a slower growth and low inflation scenario. Factoring in a neutral real rate of 125-175bps, this opens the space for 50bps cut in Repo, if RBI forecasts do materialize.
Citi economists believe that the deferment of a rate cut in this June policy was only to gain some more confirmation of the benign inflation trend evident in the recent prints and also to avoid any abrupt and premature shift in the monetary policy stance. In their assessment, the next two CPI prints before the August policy (Sub 3%) is unlikely to disappoint RBI and create conditions for a 25bps Repo rate cut in August.